Bain & Company’s latest midyear report on private equity reveals a tentative stabilisation in the industry after a two-year decline in deals, exits, and funds closed. While the downward trend slowed in early 2024, the market remains cautious with limited momentum.
Data through May 15 suggests that private equity dealmaking may have bottomed out, though the pace of investments and exits has yet to return to normal. The global buyout deal count for 2024 is projected to be flat compared to 2023, with the deal value expected to match pre-pandemic levels from 2018. Despite this, the vast amount of available dry powder is not translating into increased activity. High-profile deals like Stone Point Capital and Clayton, Dubilier & Rice’s $15.5 billion acquisition of Trust Insurance and Permira’s $6.9 billion bid for Squarespace stand out but are exceptions in a generally subdued market.
Limited partners (LPs) continue to push for faster distributions, focusing new commitments on a narrow selection of preferred funds. The prolonged slump in exits is affecting funds’ ability to raise fresh capital, increasing the importance of distributed to paid-in capital (DPI) as a competitive differentiator.
Bain & Company’s survey of over 1,400 market participants in March revealed that approximately 30% do not anticipate a pickup in dealmaking until the fourth quarter, while nearly 40% predict recovery will take until 2025 or later. Informal discussions with general partners (GPs) indicate that deal pipelines are beginning to refill, hinting at early signs of recovery.
The broader macroeconomic environment remains a significant hurdle. Although the US economy shows resilience, high interest rates and geopolitical uncertainties in the Middle East, Ukraine, and China contribute to market caution. In Europe, slow growth may prompt the European Central Bank to ease rates, but high public spending requirements will likely limit overall economic expansion.
Private equity investments through mid-May show a mixed regional performance. North America is on track to increase deal value by 67% in 2024, despite a 4% drop in deal count. Conversely, Europe and Asia face sharp declines due to economic lethargy. The first half of 2024 saw a rise in deal value to $521 billion, an 18% increase over 2023, driven by larger deal sizes rather than a higher deal count.
On the exit front, the total number of buyout-backed exits remains flat, with the exit value projected to increase by 17% to $361 billion. The reopening of the initial public offering (IPO) market, particularly in Europe, has contributed to this increase, although major exit channels remain sluggish.
Fundraising in the private equity sector continues to face challenges. Despite raising $422 billion globally by mid-May, a slight decline from the previous year, the number of funds closed has dropped significantly. The top 10 largest buyout funds account for 64% of total capital raised, highlighting a concentration of commitments among a few favoured funds.
As private equity grapples with a challenging environment, Bain & Company emphasises the need for funds to adapt their strategies to meet LP expectations and improve performance. The industry must focus on delivering competitive returns and distributing capital effectively to stand out in a crowded market.
